Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 14-week fourth quarter and 53-week year ended January 3, 2021.   Period-over-period increases stated herein reflect the comparison of 14 and 53 weeks in fourth quarter and fiscal year 2020 to 13 and 52 weeks in fourth quarter and fiscal year 2019, respectively, unless otherwise noted.

Fourth Quarter Highlights:

  • Net sales of $1.6 billion; a 17% increase from the same period in 2019
  • Comparable store sales growth of 3.7% and two-year comparable store sales growth of 5.2%, both on a 13-week basis
  • Net income of $68 million and adjusted net income(1) of $70 million; compared to net income and adjusted net income of $32 million from the same period in 2019; adjusted net income increased 119% from the same period in 2019
  • Diluted earnings per share of $0.58 and adjusted diluted earnings per share(1) of $0.59; compared to diluted and adjusted diluted earnings of $0.27 per share from the same period in 2019
  • Adjusted diluted earnings per share of $0.49, estimated on a 13-week basis, an 81% increase from the same period in 2019

Fiscal Year 2020 Highlights:

  • Net sales of $6.5 billion; a 15% increase from 2019
  • Comparable store sales growth of 6.9% and two-year comparable store sales growth of 8.0%, both on a 52-week basis
  • Net income of $287 million and adjusted net income(1) of $294 million; compared to net income and adjusted net income of $150 million from 2019; adjusted net income increased 96% from 2019
  • Diluted earnings per share of $2.43 and adjusted diluted earnings per share(1) of $2.49; compared to diluted and adjusted diluted earnings per share of $1.25 from 2019
  • Adjusted diluted earnings per share of $2.39, estimated on a 52-week basis, a 91% increase from 2019

“In 2020, we generated record earnings and cash flow from a 15% increase in sales while absorbing costs associated with a 340% increase in ecommerce sales, paying record bonuses to our frontline team members, and opening 22 new stores,” said Jack Sinclair, chief executive officer of Sprouts Farmers Market. “Executing our strategic initiatives at a more rapid pace than we originally planned is fueling these encouraging results and establishing a solid base from which we can invest and grow. I want to thank not only our dedicated team members at Sprouts, but also our supply chain partners, vendors, farmers and growers, who worked collectively to make healthy food accessible to our customers in this extraordinary year.”

________________________________________________________________________________________1 Adjusted net income and adjusted diluted earnings per share, non-GAAP financial measures, exclude the impact of certain special items. See the “Non-GAAP Financial Measures” section of this release for additional information about these items.

Fourth Quarter 2020 Financial Results

Net sales for the fourth quarter 2020 were $1.6 billion, a 17% increase compared to the same period in 2019. On a 13-week comparable basis, net sales increased 8% to $1.5 billion. Net sales growth was driven by a 3.7% increase in comparable store sales, the 53rd week in 2020, continued demand from the COVID-19 pandemic, as well as solid performance in new stores opened.

Gross profit for the quarter increased 25% to $588 million, resulting in a gross profit margin of 36.7%, an increase of 235 basis points compared to the same period 2019. A number of sustainable strategic changes contributed to this increase, from promotional activities started in the fourth quarter of 2019 to shrink initiatives, as well as positive leverage from additional sales, partially accelerated by the COVID-19 landscape. The impact of the 53rd week on gross profit margin was insignificant.

Selling, general and administrative expenses (“SG&A”) for the quarter increased $76 million to $464 million, or 28.9% of sales, a deleverage of 56 basis points compared to the same period in 2019. This deleverage was primarily driven by increased ecommerce fees and higher quarterly store performance bonuses, partially offset by leveraging fixed costs on increased sales and the 53rd week in 2020. Store operational expenses from COVID-19 were approximately $36 million for the fourth quarter.

Depreciation and amortization for the quarter increased 2.6% to $31 million, or 2.0% of sales, a decrease of 30 basis points compared to the same period 2019.

Net income for the quarter was $68 million and diluted earnings per share (“EPS”) was $0.58, compared with $32 million and $0.27 respectively, in 2019. Excluding the impact of special items, adjusted net income was $70 million and adjusted diluted EPS was $0.59; an increase of 119% compared to the same period in 2019 (see “Non-GAAP Financial Measures”). On an estimated 13-week comparable basis, adjusted diluted earnings per share increased 81% to $0.49. 

Fiscal Year 2020 Financial Results

Net sales for fiscal year 2020 were $6.5 billion, a 15% increase compared to 2019. On a 52-week comparable basis, net sales increased 13% to $6.3 billion. Net sales growth was driven by demand from the COVID-19 pandemic, contributing to a 6.9% increase in comparable store sales, strong performance in new stores opened as well as the 53rd week in 2020.

Gross profit for the year increased 26% to $2.4 billion, resulting in a gross profit margin of 36.8%, an increase of 315 basis points compared to 2019. A number of sustainable strategic changes contributed to this increase, from promotional activities to shrink initiatives, as well as positive leverage from additional sales, partially accelerated by the COVID-19 landscape. The impact of the 53rd week on gross profit margin was insignificant.

SG&A for the year increased $314 million to $1.9 billion, or 28.8% of sales, a deleverage of 130 basis points compared to 2019. Increased operational expenses from COVID-19 were approximately $176 million for the year, driving the majority of the deleverage. Additionally, we realized increased ecommerce fees from higher online sales, partially offset by leveraging fixed costs. The impact of the 53rd week on the SG&A rate was insignificant.

Depreciation and amortization for the year increased 3.0% to $124 million, or 1.9% of sales, a decrease of 20 basis points compared to 2019.

Store closure and other costs, net for the year were a credit of $0.4 million compared to a cost of $7.3 million in 2019.

Net income for the year was $287 million and diluted EPS was $2.43, compared with $150 million and $1.25, respectively, in 2019. Excluding the impact of special items, adjusted net income was $294 million and adjusted diluted EPS was $2.49; an increase of 99% compared to 2019 (see “Non-GAAP Financial Measures”). On an estimated 52-week comparable basis, adjusted diluted earnings per share increased 91% to $2.39.

Unit Growth and Development

During the fourth quarter of 2020, Sprouts opened six new stores, resulting in a total of 362 stores in 23 states as of January 3, 2021.

Leverage and Liquidity

Sprouts generated cash from operations of $494 million in fiscal 2020 and invested $96 million in capital expenditures net of landlord reimbursements, primarily for new stores. During fiscal year 2020, we paid down $288 million of outstanding debt. We ended the year with $250 million in loans and $34 million of letters of credit under our revolving credit facility, as well as $170 million in cash and cash equivalents.

Full Year 2021 Outlook

The impact that the COVID-19 pandemic will have on the U.S. economy and the Company’s fiscal 2021 results remain uncertain. Given the evolving nature of the COVID-19 pandemic on food at home demand and consumer spending, the Company is planning for fiscal 2021 based on a range of potential outcomes. The following provides information on our expected outlook for 2021:

                 
                 
    Full-year 2021 Guidance         
    52-week to 52-week         
  Net sales growth   Flat to up slightly          
  Unit growth   Approximately 20 new stores          
  Comparable store sales growth   Down low to mid-single digits          
  Adjusted EBIT   $295M to $315M          
  Adjusted diluted earnings per share   $1.78 to $1.91          
  Effective tax rate   Approximately 26%          
  Capital expenditures   $140M to $160M          
  (net of landlord reimbursements)              
                 

The company’s adjusted diluted earnings per share and adjusted EBIT outlook for the year do not include charges and costs which are expected to be similar to those charges and costs excluded from adjusted diluted earnings per share and adjusted EBIT in prior periods. Please see the explanation and reconciliation of these non-GAAP measures to the comparable GAAP measures for the 14 and 53 weeks ended January 3, 2021 and the 13 and 52 weeks ended December 29, 2019 in the tables included below.

Fourth Quarter and Full Year 2020 Conference Call

Sprouts will hold a conference call at 3 p.m. Mountain Standard Time (5 p.m. Eastern Standard Time) on Thursday, February 25, 2021, during which Sprouts executives will further discuss fourth quarter and fiscal year 2020 financial results.

A webcast of the conference call will be available through Sprouts’ investor webpage located at investors.sprouts.com. Participants should register on the website approximately 15 minutes prior to the start of the webcast.

The conference call will be available via the following dial-in numbers:

  • U.S. Participants: 877-398-9481
  • International Participants: +1-408-337-0130
  • Conference ID: 1285113

The audio replay will remain available for 72 hours and can be accessed by dialing 855-859-2056 (toll-free) or 404-537-3406 (international) and entering the confirmation code: 1285113.

Important Information Regarding Outlook

There is no guarantee that Sprouts will achieve its projected financial expectations, which are based on management estimates, currently available information and assumptions that management believes to be reasonable. These expectations are inherently subject to significant economic, competitive and other uncertainties and contingencies, many of which are beyond the control of management. See “Forward-Looking Statements” below.

Forward-Looking Statements

Certain statements in this press release are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not statements of historical fact (including, but not limited to, statements to the effect that Sprouts Farmers Market or its management "anticipates," "plans," "estimates," "expects," or "believes," or the negative of these terms and other similar expressions) should be considered forward-looking statements, including, without limitation, statements regarding the company’s outlook, growth, opportunities and long-term strategy. These statements involve certain risks and uncertainties that may cause actual results to differ materially from expectations as of the date of this release. These risks and uncertainties include, without limitation, risks associated with the impact of the COVID-19 pandemic; the company’s ability to execute on its long-term strategy; the company’s ability to successfully compete in its competitive industry; the company’s ability to successfully open new stores; the company’s ability to manage its growth; the company’s ability to maintain or improve its operating margins; the company’s ability to identify and react to trends in consumer preferences; product supply disruptions; general economic conditions; accounting standard changes; and other factors as set forth from time to time in the company’s Securities and Exchange Commission filings, including, without limitation, the company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The company intends these forward-looking statements to speak only as of the time of this release and does not undertake to update or revise them as more information becomes available, except as required by law.

Corporate ProfileSprouts is the place where goodness grows. True to its farm-stand heritage, Sprouts offers a unique grocery experience featuring an open layout with fresh produce at the heart of the store. Sprouts inspires wellness naturally with a carefully curated assortment of better-for-you products paired with purpose-driven people. The healthy grocer continues to bring the latest in wholesome, innovative products made with lifestyle-friendly ingredients such as organic, plant-based and gluten-free. Headquartered in Phoenix, and one of the fastest growing retailers in the country, Sprouts employs approximately 35,000 team members and operates more than 360 stores in 23 states nationwide. To learn more about Sprouts, and the good it brings communities, visit about.sprouts.com.

   
Investor Contact: Media Contact:
Susannah Livingston Diego Romero
(602) 682-1584 (602) 682-3173
susannahlivingston@sprouts.com media@sprouts.com

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

  Fourteen weeks ended     Thirteen weeks ended     Fifty-three weeks ended     Fifty-two weeks ended  
  January 3,2021     December 29,2019     January 3,2021     December 29,2019  
Net sales $ 1,601,834     $ 1,364,991     $ 6,468,759     $ 5,634,835  
Cost of sales   1,013,805       896,028       4,089,470       3,740,017  
Gross profit   588,029       468,963       2,379,289       1,894,818  
Selling, general and administrative expenses   463,635       387,481       1,863,869       1,549,707  
Depreciation and amortization (exclusive of depreciation included in cost of sales)   31,487       30,703       124,124       120,491  
Store closure and other costs, net   (25 )     3,864       (369 )     7,260  
Income from operations   92,932       46,915       391,665       217,360  
Interest expense, net   3,106       5,195       14,787       21,192  
Income before income taxes   89,826       41,720       376,878       196,168  
Income tax provision   21,429       10,086       89,428       46,539  
Net income $ 68,397     $ 31,634     $ 287,450     $ 149,629  
Net income per share:                              
Basic $ 0.58     $ 0.27     $ 2.44     $ 1.25  
Diluted $ 0.58     $ 0.27     $ 2.43     $ 1.25  
Weighted average shares outstanding:                              
Basic   117,951       117,934       117,821       119,368  
Diluted   118,315       118,219       118,224       119,742  

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

  January 3,2021     December 29,2019  
ASSETS              
Current assets:              
Cash and cash equivalents $ 169,697     $ 85,314  
Accounts receivable, net   14,815       15,713  
Inventories   254,224       275,979  
Prepaid expenses and other current assets   27,224       10,833  
Total current assets   465,960       387,839  
Property and equipment, net of accumulated depreciation   726,500       741,508  
Operating lease assets, net   1,045,408       1,028,436  
Intangible assets, net of accumulated amortization   184,960       185,395  
Goodwill   368,878       368,078  
Other assets   14,698       11,727  
Total assets $ 2,806,404     $ 2,722,983  
LIABILITIES AND STOCKHOLDERS’ EQUITY              
Current liabilities:              
Accounts payable $ 139,337     $ 122,839  
Accrued liabilities   143,402       136,482  
Accrued salaries and benefits   76,695       48,579  
Accrued income tax         2,005  
Current portion of operating lease liabilities   135,739       106,153  
Current portion of finance lease liabilities   959       754  
Total current liabilities   496,132       416,812  
Long-term operating lease liabilities   1,069,535       1,078,927  
Long-term debt and finance lease liabilities   260,459       549,419  
Other long-term liabilities   40,912       41,517  
Deferred income tax liability   58,073       54,356  
Total liabilities   1,925,111       2,141,031  
Commitments and contingencies              
Stockholders’ equity:              
Undesignated preferred stock; $0.001 par value; 10,000,000 shares authorized, no shares issued and outstanding          
Common stock, $0.001 par value; 200,000,000 shares authorized, 117,953,435 shares issued and outstanding, January 3, 2021; 117,543,668 shares issued and outstanding, December 29, 2019   118       117  
Additional paid-in capital   686,648       670,966  
Accumulated other comprehensive loss   (8,474 )     (4,682 )
Retained earnings (Accumulated deficit)   203,001       (84,449 )
Total stockholders’ equity   881,293       581,952  
Total liabilities and stockholders’ equity $ 2,806,404     $ 2,722,983  

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)

  Fifty-threeweeks ended     Fifty-twoweeks ended  
  January 3,2021     December 29,2019  
Cash flows from operating activities              
Net income $ 287,450     $ 149,629  
Adjustments to reconcile net income to net cash provided by operating activities:              
Depreciation and amortization expense   126,507       122,804  
Operating lease asset amortization   99,276       81,842  
Store closure and other costs, net   (321 )     4,113  
Share-based compensation   14,339       8,949  
Deferred income taxes   3,717       (216 )
Other non-cash items   3,683       4,136  
Changes in operating assets and liabilities:              
Accounts receivable   25,977       36,062  
Inventories   21,754       (11,612 )
Prepaid expenses and other current assets   (14,970 )     19,208  
Other assets   (5,461 )     (1,275 )
Accounts payable   20,184       9,420  
Accrued liabilities   4,296       17,274  
Accrued salaries and benefits   28,116       295  
Accrued income tax   (2,005 )     2,005  
Operating lease liabilities   (120,085 )     (88,002 )
Other long-term liabilities   1,578       578  
Cash flows from operating activities   494,035       355,210  
Cash flows used in investing activities              
Purchases of property and equipment   (121,968 )     (183,232 )
Cash flows used in investing activities   (121,968 )     (183,232 )
Cash flows used in financing activities              
Proceeds from revolving credit facilities         265,405  
Payments on revolving credit facilities   (288,000 )     (180,405 )
Payments on finance lease obligations   (754 )     (690 )
Repurchase of common stock         (176,310 )
Proceeds from exercise of stock options   1,343       4,878  
Other         (319 )
Cash flows used in financing activities   (287,411 )     (87,441 )
Increase in cash, cash equivalents, and restricted cash   84,656       84,537  
Cash, cash equivalents, and restricted cash at beginning of the period   86,785       2,248  
Cash, cash equivalents, and restricted cash at the end of the period $ 171,441     $ 86,785  

Non-GAAP Financial Measures

In addition to reporting financial results in accordance with accounting principles generally accepted in the United States (“GAAP”), the company presents EBITDA, adjusted EBITDA, adjusted EBIT, adjusted net income and adjusted diluted earnings per share. These measures are not in accordance with, and are not intended as alternatives to, GAAP. The company's management believes that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of operations and financial condition. In addition, management uses these measures for reviewing the financial results of the company, and certain of these measures may be used as components of incentive compensation.

The company defines EBITDA as net income before interest expense, provision for income tax, and depreciation, amortization and accretion and adjusted EBITDA as EBITDA excluding the impact of special items. The company defines adjusted EBIT, adjusted net income and adjusted diluted earnings per share by adjusting the applicable GAAP measure to remove the impact of special items.

Non-GAAP measures are intended to provide additional information only and do not have any standard meanings prescribed by GAAP. Use of these terms may differ from similar measures reported by other companies. Because of their limitations, non-GAAP measures should not be considered as a measure of discretionary cash available to use to reinvest in the growth of the company’s business, or as a measure of cash that will be available to meet the company’s obligations. Each non-GAAP measure has its limitations as an analytical tool, and they should not be considered in isolation or as a substitute for analysis of the company’s results as reported under GAAP.

The following table shows a reconciliation of adjusted EBITDA to net income for the fourteen and fifty-three weeks ended January 3, 2021 and for the thirteen and fifty-two weeks ended December 29, 2019 and a reconciliation of EBIT, net income and diluted earnings per share to adjusted EBIT, adjusted net income and adjusted diluted earnings per share for the fourteen and fifty-three weeks ended January 3, 2021 and for the thirteen and fifty-two weeks ended December 29, 2019:

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIESNON-GAAP MEASURE RECONCILIATION(UNAUDITED)(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

  Fourteenweeks ended     Thirteenweeks ended     Fifty-threeweeks ended     Fifty-twoweeks ended  
  January 3,2021     December 29,2019     January 3,2021     December 29,2019  
Net income $ 68,397     $ 31,634     $ 287,450     $ 149,629  
Income tax provision   21,429       10,086       89,428       46,539  
Interest expense, net   3,106       5,195       14,787       21,192  
Earnings before interest and taxes (EBIT)   92,932       46,915       391,665       217,360  
Special Items:                              
Strategic initiatives (1)   1,802             8,835        
Store closures (2)                     508  
Adjusted EBIT   94,734       46,915       400,500       217,868  
                               
Depreciation, amortization and accretion   32,080       31,258       126,508       122,804  
Adjusted EBITDA $ 126,814     $ 78,173     $ 527,008     $ 340,672  
                               
Net income   68,397       31,634       287,450       149,629  
Special Items:                              
Strategic initiatives, net of tax (1)   1,339             6,565        
Store closures, net of tax (2)                     377  
Adjusted Net income $ 69,736     $ 31,634     $ 294,015     $ 150,006  
Diluted earnings per share $ 0.58     $ 0.27     $ 2.43     $ 1.25  
Adjusted diluted earnings per share $ 0.59     $ 0.27     $ 2.49     $ 1.25  
                               
Diluted weighted average shares outstanding   118,315       118,219       118,224       119,742  

(1)   Includes professional fees related to our ongoing strategic initiatives. After-tax impact includes the tax benefit on the pre-tax charge.(2)   Includes the direct costs associated with store closures and relocation.  After-tax impact includes the tax benefit on the pre-tax charge.

Source: Sprouts Farmers Market, Inc.Phoenix, AZ2/25/2021